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FHA mortgages have been a popular means for African Americans to buy homes because they are available to borrowers with lower credit scores and typically require smaller down payments. Borrowers pay an FHA premium in return for protections such as intervention options when borrowers fall behind, a mortgage modification program and refinancing options.

Because of that, the lawsuit claims the sales have a disparate impact on African Americans. The FHA insures 43 percent of all mortgages made to African-American homeowners, according to HUD.

“HUD, in selling these loans out of the FHA mortgage program, they’re depriving homeowners out of a sustainable mortgage product that ensures they will be able to stay in their home for years to come,” says Christopher Fasano, a staff attorney with MFY Legal Services Inc., which filed the lawsuit along with Emery Cilli Brinckerhoff & Abady LLP, another New York City based law firm.